Department of Labor Investigations Target ERISA Violators
I lead a group of professionals that is dedicated to auditing employee benefit plans, and am currently serving as chair of the American Institute of Certified Public Accountants (AICPA) Ethics Technical Standards Department of Labor (DOL) Subcommittee. This subcommittee reviews deficient audits that are referred to the AICPA by the DOL, and sanctions AICPA members who do not comply with standards and regulatory requirements.
This experience has given me an insider’s view of compliance and regulation, and demonstrated how important it is for plan sponsors to carefully choose professionals who have the education and experience necessary to audit employee benefit plans or other highly regulated industries. What I have learned over the years is that regulators’ audit and inspection programs are effective in revealing compliance violations of plan sponsors as well as weaknesses in the professionals they are using.
EBSA’s successful investigations reveal shortcomings
The Employee Benefits Security Administration (EBSA) of the Department of Labor is responsible for ensuring the integrity of the private employee benefit plan system in the United States. EBSA's oversight authority extends to nearly 684,000 retirement plans, approximately 2.4 million health plans, and a similar number of other welfare benefit plans, such as those providing life or disability insurance. These plans cover about 141 million workers and their dependents and include assets of over $7.6 trillion.
Under ERISA, plan sponsors have fiduciary responsibilities that include:
- Operating the plan solely in the interest of plan participants and beneficiaries and for the exclusive purpose of providing them benefits and defraying reasonable plan expenses
- Administering the plan with care, skill, prudence, and diligence
- Minimizing the risk of large losses by diversifying the investments of the plan
- Following the terms of the plan
- Paying only reasonable and necessary expenses
- Selecting and monitoring service providers
In 2013, EBSA demonstrated it can effectively target Employee Retirement Income Security Act (ERISA) violators. It closed 3,677 civil investigations, and 2,677 (72.8 percent) resulted in monetary fines for plans or other corrective action. Often EBSA pursues voluntary compliance to correct violations and restore losses to employee benefit plans. However, in cases where voluntary compliance efforts have failed, or for which voluntary compliance is not appropriate, EBSA may pursue litigation. In 2013, litigation was filed in 111 civil cases.
EBSA also has the responsibility to investigate violations of the criminal provisions of ERISA and those provisions of Title 18 of the United States Code that relate to employee benefit plans. In 2013, EBSA closed 320 criminal investigations that led to the indictment of 88 individuals — including plan officials, corporate officers, and service providers.
Voluntary correction and compliance
EBSA's Voluntary Fiduciary Correction Program (VFCP) and Delinquent Filer Voluntary Compliance Program (DFVCP) encourage the correction of ERISA violations by providing significant incentives for fiduciaries and others to self-correct.
The VFCP allows plan officials who have identified certain violations of ERISA to take corrective action to remedy the breaches and voluntarily report the violations to EBSA, without being subject to enforcement action. In 2013, EBSA received 1,535 applications for the VFCP.
The DFVCP encourages plan administrators to bring their plans into compliance with ERISA's filing requirements. More than 23,000 annual reports were received through this program in 2013.
Fair treatment and fiduciary breaches
The DOL investigations are focused on fiduciary breaches and fair treatment of participants. The investigations are triggered in response to participant complaints to the DOL or upon review of the Form 5500 filing.
Some of the areas DOL has focused on include:
- Prohibited transactions, including late remittance of participant contributions
- Alternative or “hard-to-value” investments
- Fiduciary violations
- Employee stock ownership plan transactions
- Criminal acts including embezzlement and willful violation of laws and regulations
Study of audit work
In addition to investigations, EBSA is currently conducting a study to assess the quality of employee benefit plan audit work. The study is focusing on the auditor’s compliance with professional auditing and accounting standards and regulatory requirements. It is expected to be completed in 2014, and a public report will be issued early next year. Prior audit quality studies have found significant deficiencies with ERISA audits.
There already has been legislative action that would allow the Secretary of Labor to modify GAAS and GAAP for ERISA audits. It would also give the DOL civil enforcement authority over CPAs that perform ERISA audits, including authority to assess penalties and sanction ERISA auditors for failing to meet professional standards or auditor qualification requirements.
Resources for plan sponsors
There are many resources available to assist plan sponsors in preparing for DOL investigations or in selecting an Independent Qualified Public Accountant (IQPA) for the audit of their plan. Plans are required to be audited by ERISA if they have more than 100 eligible participants in the plan at the beginning of the plan year. The audit report is attached to the Form 5500 annual report.
It is critical that plan sponsors select an auditor who has the experience and qualifications to audit employee benefit plans. The firm should be a member of the AICPA Employee Benefit Plan Audit Quality Center (EBPAQC), which requires member firms to obtain employee benefit plan specific training, conduct internal inspections of their audit practice, have a peer review, and meet other requirements that provide qualifications to perform an EBP audit.
Due to the regulatory focus on employee benefit plan investigations and audits, plan sponsors should ensure that they are meeting their fiduciary responsibilities by performing their duties in the best interest of plan participants. One element of that fiduciary role is for plan sponsors to research and use professionals with the experience and resources necessary to carry out their duties.